ELTIFs
ELTIFs
European Long-Term Investment Funds (“ELTIFs”) are regulated EU alternative investment funds (“EU AIFs”), managed by EU alternative investment fund managers (“EU AIFMs”), that are designed to invest in “real economy” asset classes, such as credit, private equity venture capital, energy, infrastructure, and real estate.
The ELTIF has undergone several recent changes and the enhanced framework is proving attractive to fund managers looking to provide long-term investment options to retail and professional investors. Unlike the AIFMD marketing passport which is limited to professional investors (i.e., a MiFID “professional client”), ELTIFs can be distributed on a cross-border, pan-EU basis to both professional and retail investors.
There are three categories of ELTIF available in Ireland: (a) Professional Investor ELTIFs available to professional investors (i.e., MiFID “professional clients”), (b) Qualified Investor ELTIFs available to “Qualifying Investors” which includes professional clients and other semi-professional/retail clients, and (c) Retail Investor ELTIFs available to investors that are not “professional clients”. Professional Investor ELTIFs and Qualified Investor ELTIFs, where the relevant provisions of the Central Bank AIF Rulebook are complied with, can avail of the Central Bank’s 24-hour approval process. Qualified Investor ELTIFs must comply with the provisions applicable to ELTIFs marketed to retail investors, notwithstanding that such funds can avail of the Central Bank’s 24-hour approval process.
An ELTIF can only invest in the following categories of assets:
- eligible investment assets under the ELTIF Regulation (“ELTIF Eligible Assets”); and
- assets referred to in Article 50(1) of the UCITS Directive (“UCITS Eligible Assets”).
The following assets are ELTIF Eligible Assets:
- real assets,
- equity or quasi-equity instruments which have been: (i) issued by a qualifying portfolio undertaking1 and acquired by the ELTIF from that qualified portfolio undertaking or from a third party via the secondary market, (ii) issued by a qualified portfolio undertaking in exchange for an equity or quasi-equity instrument previously acquired by the ELTIF from that qualified portfolio undertaking or from a third party via the secondary market; (iii) issued by an undertaking in which a qualified portfolio undertaking holds a capital participation in exchange for an equity or quasi-equity instrument acquired by the ELTIF in accordance with point (i) and (ii) above;
- debt instruments issued by a qualified portfolio undertaking;
- loans granted by the ELTIF to a qualified portfolio undertaking with a maturity that does not exceed the life of the ELTIF;
- units and shares of one or several other ELTIFs, EuVECAs, EuSEFs, UCITS and/or EU AIFs managed by EU AIFMs provided that those ELTIFs, EuVECAs, EuSEFs, UCITS and EU AIFs invest in ELTIG Eligible Assets or UCITS Eligible Assets and have not themselves invested more than 10% of their assets in any other collective investment undertaking. It is possible to establish an ELTIF as a master-feeder structure, provided both the feeder and master are each authorised as ELTIFs;
- simple, transparent and standardised securitisations where the underlying disclosures correspond to certain assets, such as mortgage-backed residential/commercial loans, credit facilities, and trade receivables (provided that the proceeds from the securitisation bonds are used for financing or refinancing);
- bonds issued by a qualified portfolio undertaking pursuant to Regulation (EU) 2023/2631 (i.e., European Green Bonds)
There are certain diversification and concentration limits that apply to Qualified Investor ELTIFs and Retail Investor ELTIFs. An ELTIF is permitted to borrow provided that such cash borrowing:
- represents no more than 100% of the ELTIF’s net asset value (for ELTIFs that are marketed solely to professional investors), or 50% of the ELTIF’s net asset value (for ELTIFs that can be marketed to retail investors);
- serves the purpose of making investments and providing liquidity, including paying costs and expenses, provided that the holdings in cash or cash equivalent of the ELTIF are not sufficient to make the investment concerned;
- is contracted in the same currency as the assets to be acquired with the borrowed cash, or in another currency where currency exposure has been appropriately hedged; and
- has a maturity date no longer than the life of the ELTIF.
ELTIFs can be closed-ended or open-ended (provided certain requirements relating to redemptions are complied with).
An Irish-domiciled ELTIF may be established as a standalone fund or umbrella fund with segregated liability between sub-funds. It may be established as an ICAV, investment limited partnership, unit trust or common contractual fund.
1 A QPU is an undertaking that fulfils the following requirements at the time of the initial investment:
a. it is not a financial undertaking (meaning a credit institution, an investment firm, an AIFM, a UCITS management company, an insurance/reinsurance undertaking, a financial holding company or a mixed-activity holding company) unless:
(i) it is a financial undertaking that is not a financial holding company or a mixed-activity holding company; and
(ii) that financial undertaking has been authorised or registered more recently than 5 years before the date of the initial investment;
b. it is an undertaking which:
(i) is not admitted to trading on a regulated market or on a multilateral trading facility; or
(ii) is admitted to trading on a regulated market or on a multilateral trading facility and has a market capitalisation of no more than €1.5 billion; and
c. it is established in a member state, or in a third country provided that the third country is not identified as a high-risk third country or listed on the EU list of non-cooperative jurisdictions for tax purposes.
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